U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended December 31, 2003.

Commission file number: 1-13704

PROLOGIC MANAGEMENT SYSTEMS, INC.
(Name of small business issuer in its charter)

Arizona 86-0498857
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)

110 South Church Avenue, #3362, Tucson, Arizona 85701
(Address of principal executive offices) (Zip Code)

Issuer's telephone number (520) 747-4100

Securities registered under Section 12(g) of the Exchange Act:

Common Stock

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---

Number of shares of common stock outstanding on December 31, 2003 was 7,275,048.

Transitional Small Business Disclosure Format:
Yes ; No X
------ -------

Material Subsequent Event

On February 13, 2004, in the United States Bankruptcy Court In And For
The District of Arizona, (Cases No. 4-04-00393 -TUC-EWH and 04-00394-TUC-EWH)
debtors Basis, Inc. ("Basis") and Prologic Management Systems, Inc. ("Prologic")
(collectively, the "Debtors"), and secured creditor MRA Systems, Inc. d/b/a GE
Access ("GE Access) jointly moved and agreed to the dismissal of the jointly
administered Chapter 11 cases in a Joint Motion To: (1) Terminate the automatic
stay to allow GE Access to Immediately Notice Its Foreclosure Sale Pursuant to
Applicable Non-Bankruptcy Law; and (2) Dismiss Chapter 11 Cases. The Judge
approved the motion dismissing the Chapter 11 cases thus allowing GE Access to
foreclose immediately on all of the assets of the Debtors.

Accordingly, effective, February 13, 2004, the Company is subject to
liquidation basis accounting. By February 27, 2004, GE Access will have
foreclosed on and taken possession of all of the assets of Prologic and Basis,
resulting in a Prologic Balance Sheet on February 29, 2004, showing zero assets.
Prologic will have remaining approximately $3,700,000 of unsecured liabilities
to creditors other than GE Access. Prologic will not be engaged in any further
business activities in the near term. No adjustments have been made to the
December 31, 2003 condensed financial statements as a result of this material
subsequent event.

Prologic Management Systems, Inc.
Index

Page

Part I. FINANCIAL INFORMATION 4

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at December 31, 2003 (unaudited) and
March 31, 2003 4

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
December 31, 2003 (unaudited) and December 31, 2002 (unaudited) 5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 2003 (unaudited) and December 31, 2002 (unaudited) 6

Notes to Condensed Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11

Item 3. Controls and Procedures 18

Part II. OTHER INFORMATION 18

Item 1. Legal Proceedings 18

Item 2. Changes in Securities 19

Item 3. Defaults upon Senior Securities 19

Item 4. Submission of Matters to a Vote by Security Holders 19

Item 5. Other Information 19

Item 6. Exhibits and Reports on Form 8-K 19

SIGNATURES 20

PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements

Prologic Management Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

December 31, March 31,
2003 2003
---------------- ---------------
ASSETS (unaudited)

Current assets:

Cash $ 400,785 $ 216,904
Accounts receivable, less allowance for doubtful accounts of $98,490 at
December 31, 2003 and $217,264 at March 31, 2003 1,191,595 4,175,496
Inventory 189,200 245,257
Prepaid expenses 273,074 175,270
---------------- ---------------

Total current assets 2,054,654 4,812,927

Property and equipment, net 212,241 324,494
Deferred financing costs, net 28,701 93,267
Other assets 206,669 163,049
---------------- ---------------

TOTAL ASSETS $ 2,502,265 $ 5,393,737
---------------- ---------------

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

Current liabilities:
Line of credit (In default) $ 610,000 $ 205,000
Short term debt and notes payable 2,788,022 2,782,770
Long term interest on accrued liabilities (In default) 939,260 --
Long-term debt and notes payable (In default) 6,336,686 --
Accounts payable 1,542,267 3,931,356
Sales tax payable 601,548 762,160
Accrued expenses 635,760 616,008
Deferred maintenance revenue 852,843 916,545
---------------- ---------------
Total current liabilities 14,306,386 9,213,839

Long term interest on accrued liabilities -- 653,708
Long-term debt and notes payable -- 6,349,686
---------------- ---------------

Total liabilities 14,306,386 16,217,233
---------------- ---------------

Preferred stock:
Series A cumulative convertible preferred stock, no par value, 16,667 shares
authorized, 16,667 shares issued and outstanding 100,000 100,000
Series B cumulative convertible preferred stock, no par value, 100,000
shares authorized, 9,500 shares issued and outstanding 68,588 68,588
Series C cumulative convertible preferred stock, no par, 100,000 shares
authorized, 55,850 shares issued and outstanding 750,000 750,000
Stock subscription receivable (191,500 ) (191,500 )
---------------- ---------------

727,088 727,088
---------------- ---------------
Stockholders' deficit:
Common stock, no par value, 50,000,000 shares authorized, 7,275,048 shares
issued and outstanding at December 31, 2003 and March 31, 2003 10,205,073 10,205,073
Warrants 970,766 961,366
Accumulated deficit (23,707,048 ) (22,717,023 )
---------------- ---------------

Total stockholders' deficit (12,531,209 ) (11,550,584 )
---------------- ---------------

Total liabilities, preferred stock and stockholders' deficit
$ 2,502,265 $ 5,393,737
---------------- ---------------

See accompanying notes to condensed consolidated financial statements.

Prologic Management Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
-------------- ------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:

Hardware $ 1,980,235 $ 1,872,668 $ 6,070,107 $ 7,545,811
Software licenses 234,355 456,328 1,569,164 1,458,074
Professional services 1,129,477 1,348,142 4,846,096 3,947,288
-------------- ------------- -------------- --------------
Total revenue 3,344,067 3,677,138 12,485,367 12,951,173

Cost of revenue:
Hardware 1,675,296 1,744,419 5,073,144 6,901,683
Software licenses 192,500 409,870 1,418,561 1,283,358
Professional services 377,876 830,616 2,606,372 2,491,928
-------------- ------------- -------------- --------------
Total cost of revenue 2,245,672 2,984,905 9,098,077 10,676,969
-------------- ------------- -------------- --------------

Gross profit 1,098,395 692,233 3,387,290 2,274,204
-------------- ------------- -------------- --------------

Operating expenses:
General and administrative 945,361 1,419,841 2,968,528 3,535,588
Selling and marketing 348,536 213,829 1,034,191 800,105
-------------- ------------- -------------- --------------
Total operating expenses 1,293,897 1,633,670 4,002,719 4,335,693
-------------- ------------- -------------- --------------
Operating loss (195,502) (941,437) (615,429) (2,061,489)
-------------- ------------- -------------- --------------

Interest and other income (expense):
Interest expense (117,977) (166,321) (374,621) (465,335)
Other income (expense) -- 4,606 25 8,496
-------------- ------------- -------------- --------------
Total other income (expense) (117,977) (161,715) (374,596) (456,839)
-------------- ------------- -------------- --------------

Net loss (313,479) (1,103,152) (990,025) (2,518,328)
Preferred stock dividend (18,338) (18,338) (36,675) (55,013 )
-------------- ------------- -------------- --------------
Net loss available to common
stockholders $ (331,817) $ (1,121,490) $ (1,026,700) $ (2,573,341)
-------------- ------------- -------------- --------------

Weighted average number of common shares:
Basic and diluted 7,275,048 7,275,048 7,275,048 7,230,806
-------------- ------------- -------------- --------------

Loss per common share:
Basic and diluted $ (0.05) $ (0.15) $ (0.14) $ (0.36)
-------------- ------------- -------------- --------------

See accompanying notes to condensed consolidated financial statements.

Prologic Management Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows

Increase (Decrease) in Cash Nine Months Ended December 31,
2003 2002
------------- -------------

(unaudited) (unaudited)
Cash flows from operating activities:

Net loss $ (990,025 ) $ (2,518,328 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 179,989 178,742
Issuance of warrants for services 9,400 6,400
Bad debt expense -- 253,727
Change in assets and liabilities:
Accounts receivable 2,983,901 1,298,678
Inventory 56,057 5,841
Prepaid expenses (97,804 ) (32,286 )
Other assets (43,620 ) 180,162
Accounts payable (2,389,089 ) 543,558
Accrued expenses 144,692 (35,350 )
Deferred maintenance revenue (63,702 ) 37,602
------------- -------------

Total adjustments 779,824 2,437,074
------------- -------------

Net cash used in operating activities (210,201 ) (81,254 )
------------- -------------

Cash flows from investing activities:
Purchase of equipment (3,170 ) (153,095 )
------------- -------------
------------- -------------

Net cash used in investing activities (3,170 ) (153,095 )
------------- -------------

Cash flows from financing activities:
Net change in line of credit 405,000 848,281
Proceeds from debt -- --
Issuance of new debt -- --
Repayment of debt (7,748) (77,180 )
------------- -------------
Net cash provided by financing activities 397,252 771,101
------------- -------------

Net increase in cash 183,881 536,753

Cash, beginning of period 216,904 81,280
------------- -------------

Cash, end of period $ 400,785 $ 618,033
------------- -------------

Supplemental statement of cash flow information:
Cash paid during the nine months for interest $ 60,621 $ 66,934
Cash paid during the nine months for taxes -- --

Non-cash financing and investing activities:
Preferred stock dividends paid in common stock $ -- $ 13,458
Transfer of accounts payable to short-term debt $ -- $ 45,126

See accompanying notes to condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation - Interim Periods

The accompanying unaudited condensed consolidated financial statements
include the accounts of Prologic Management Systems, Inc. (the
"Company") and its wholly-owned subsidiary, BASIS, Inc. ("BASIS"),
including its Solid Systems division which was acquired May 31, 2002.
All significant inter-company balances and transactions have been
eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying condensed consolidated financial statements include all
adjustments (of a normal recurring nature) which are necessary for a
fair presentation of the results for the interim periods presented.
Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted pursuant to such
rules and regulations. Although the Company believes that the
disclosures are adequate to make the information presented not
misleading, these financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto
included in the Company's Report on Form 10-KSB for the fiscal year
ended March 31, 2003. The results of operations for the three and
nine-month periods ended December 31, 2003 and 2002 are not necessarily
indicative of the results to be expected for the full fiscal year.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
previously reported, the Company has suffered recurring losses from
operations and has negative working capital and a stockholders'
deficit. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The Company's independent
auditors qualified their opinion on the Company's March 31, 2003
financial statements by including an explanatory paragraph in which
they expressed substantial doubt about the Company's ability to
continue as a going concern.

Material Subsequent Events

On February 2, 2004, the Company and its wholly owned subsidiary,
Basis, Inc., each filed a voluntary petition under Chapter 11 of the
Federal Bankruptcy Code in the United States Bankruptcy Court District
of Arizona. The Company filed a Form 8-K with the SEC on February 2,
2004 disclosing the Chapter 11 filings.

On February 13, 2004, in the United States Bankruptcy Court In And For
The District of Arizona, (Cases No. 4-04-00393 -TUC-EWH and
04-00394-TUC-EWH) debtors Basis, Inc. ("Basis") and Prologic Management
Systems, Inc. ("Prologic") (collectively, the "Debtors"), and secured
creditor MRA Systems, Inc. d/b/a GE Access ("GE Access) jointly moved
and agreed to the dismissal of the jointly administered Chapter 11
cases in a Joint Motion To: (1) Terminate the automatic stay to allow
GE Access to Immediately Notice Its Foreclosure Sale Pursuant to
Applicable Non-Bankruptcy Law; and (2) Dismiss Chapter 11 Cases. The
Judge approved the motion dismissing the Chapter 11 case(s) thus
allowing GE Access to foreclose immediately on all of the assets of the
Debtors.

Accordingly, effective, February 13, 2004, the Company is subject to
liquidation basis accounting. By February 27, 2004, GE Access will have
foreclosed on and taken possession of all of the assets of Prologic and
Basis, resulting in a Prologic Balance Sheet on February 29, 2004,
showing zero assets. Prologic will have remaining approximately
$3,700,000 of unsecured liabilities. Prologic will not be engaged in
any further business activities in the near term. No adjustments have
been made to the December 31, 2003 condensed financial statements as a
result of this material subsequent event.

2. Acquisition of Assets from Solid Systems, Inc.

On June 15, 2002, the Company completed an acquisition, effective May
31, 2002, whereby the Company acquired, in a non-cash asset purchase,
four (4) additional offices and associated personnel and equipment from
Solid Systems, Inc., an information technology service provider. The
results of operations of Solid Systems have been included in the
Company's consolidated results of operations since May 31, 2002, the
acquisition date.

The unaudited proforma combined historical results of operations, as if
Solid Systems had been acquired at the beginning of the first quarter
ended June 30, 2002, were estimated to be:

Nine months
ended
December 31, 2002
----------------------

Revenue $ 10,057
Net loss available to common shareholders $ (1,827)
Basic and diluted loss per share $ (0.25)

The proforma results include the operations of the Company for the nine
months ended December 31, 2002, and were not necessarily indicative of
what actually would have occurred if the acquisition had been completed
as of the beginning of the period presented, nor are they necessarily
indicative of future consolidated results.

3. Line of Credit

During the quarter ended June 30, 2001, the Company entered into a
financing agreement with a key lender. This agreement provides the
Company with an immediate partial advance on all sales and requires the
Company to immediately assign the related receivables to the lender.
Upon collection of the related receivables, the lender pays the
remaining balance, if any, to the Company. The receivables are assigned
with recourse and advances over 90 days outstanding bear interest at a
rate of 10% per annum. At December 31, 2003, the Company was liable for
$1,686,934 under this agreement, which is included in short-term debt
and notes payable.

On March 26, 2003, the Company entered into an agreement with a key
lender in the form of a line of credit with an interest rate of eight
percent (8%) per annum, which shall be payable in arrears on the 10th
day of each month commencing April 10, 2003. All outstanding principal
and accrued, but unpaid interest, if not paid earlier, were due and
payable on September 26, 2003. The note is secured by all of the
Company's assets. The total advance could not exceed $610,000. At
December 31, 2003 and March 31, 2003, the Company was liable for
$610,000 and $205,000, respectively, under this agreement. As of the
date of this report the Company has not repaid any of the outstanding
principal or interest and the key lender has notified the Company that
the note is in default. The Company has no source of funds to cure this
default. See Note 1 Material Subsequent Events.

4. Property and Equipment

Property and equipment consists of the following:

December 31, 2003 March 31, 2003
----------------- --------------
Furniture and leasehold improvements $ 155,838 $ 236,250
Equipment and software 1,056,534 1,131,665
------------ ------------
Total property and equipment 1,212,372 1,367,915
Less accumulated depreciation ( 1,000,131) (1,043,421)
------------ ------------
Net property and equipment $ 212,241 $ 324,494
============ ============

5. Inventory

Inventory consists primarily of parts associated with servicing
maintenance contracts and, to a lesser degree, third-party computer
hardware and third-party software products which are typically awaiting
transfer to a customer, and is stated at the lower of cost (first-in,
first-out) or market.

6. Long Term Debt

The current note requires the Company to make monthly payments of 40% of its
available operating profits each month. This note further requires that the
Company direct 50% of any future sums received by, committed to, or invested in
the Company as an additional equity capital infusion, towards repayment of the
unpaid balance of this note. In August 2002, the Company further amended the
note to add weekly payments of $1,000. As of the date of this report the Company
has not repaid any of the outstanding principal or interest and the key lender
has notified the Company that the note is in default. The Company has no source
of funds to cure this default. See Note 1 for Material Subsequent Events.

7. Earnings Per Share

FASB Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128") provides for the calculation of Basic and Diluted
earnings per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the entity. For the
three and nine months ended December 31, 2003 and 2002, potential
common stock, consisting of stock options, warrants and convertible
preferred stock totaling 1,838,711 and 2,179,111, respectively, are
excluded from the computation of diluted earnings per share because
they are antidilutive.

8. Stock-Based Compensation

The Company accounts for employee stock options or similar equity
instruments in accordance with Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123). SFAS No. 123 defines a fair-value-based method of
accounting for employee stock options or similar equity instruments.
This statement gives entities a choice to recognize employee related
compensation expense by adopting the new fair-value method or to
measure compensation using the intrinsic value method under Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to
Employees", the former standard. If the former standard for measurement
is elected, SFAS No. 123 requires supplemental disclosure to show the
effect of using fair value measurement criteria.

The Company has elected to account for its stock-based compensation
plans under APB No. 25 and has therefore recognized no compensation
expense in the accompanying consolidated financial statements for
stock-based awards granted as the option price for all options grants
exceeded the fair value of the Company's common stock on the date of
grant.

If the Company had accounted for its stock-based compensation plans
using a fair value based method of accounting, the Company's net loss
and loss per common and common share equivalent would have been as
follows:

Three Months Three Months Nine months Nine months
Ended Ended Ended Ended
12/31/2003 12/31/2002 12/31/2003 12/31/2002
------------- ------------ ------------- -------------

Net loss available to common $ (331,817 ) $(1,121,490 ) $ (1,026,700 ) $ (2,573,341 )
stockholders, as reported

Deduct: Total stock-based
compensation expense determined
under fair value based method for
all awards, net of related tax -- -- (13,000 ) (10,927)
effects ------------- ------------ ------------- -------------

Pro forma net loss available to
common stockholders $ (331,817 ) $(1,121,490 ) $ (1,039,700 ) $ (2,584,268 )
============= ============ ============= =============

Net loss per share (basic and
diluted), as reported $ (0.05 ) $ (0.15 ) $ (0.14 ) $ (0.36 )
Net loss per share (basic and
diluted), pro forma (0.05 ) (0.15 ) (0.14 ) (0.36 )
------------- ------------ ------------- -------------

The effects of applying SFAS No. 123 for pro forma disclosures for the
periods ended December 31, 2003 and December 31, 2002 are not likely to
be representative of the effects on reported net loss and loss per
common and common share equivalent for future years, because options
vest over several years and additional awards generally are made each
year.

9. Recently Issued Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities," to improve
accounting for derivative instruments. SFAS 149 requires that contracts
with comparable characteristics be accounted for similarly. It
clarifies when a contract with an initial net investment should be
considered a derivative. Additionally, it clarifies when a derivative
includes a financing component that should be reported as a financing
activity in the statement of cash flows. SFAS No. 149 generally is
effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 did not have a material effect on the
Company's consolidated financial position or results of operations.

In June 2003 the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity" SFAS No. 150 requires certain instruments, including mandatory
redeemable shares, to be classified as liabilities, not as part of
shareholders' equity or redeemable equity. For instruments that are
entered into or modified after May 31, 2003, SFAS No. 150 is effective
immediately upon entering the transaction or modifying the terms. For
other instruments covered by Statement 150 that were entered into
before June 1, 2003, Statement 150 is effective for the first interim
period beginning after June 15, 2003. The Company has evaluated the
provisions of SFAS No. 150 and does not expect SFAS No. 150 to have a
material effect on the Company's consolidated financial position or
results of operations.

In November 2002, the FASB issued interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees. Including
indirect Guarantees of Indebtedness of Others," which disclosures are
effective for financial statements for periods ending after December
15, 2002. While the Company has various guarantees included in
contracts in the normal course of business, primarily in the form of
indemnities, these guarantees would only result in immaterial increases
in future costs, but do not represent significant commitments or
contingent liabilities of the indebtedness of others.

In January 2003, the FASB issued interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN 46) which requires the
consolidation of variable interest entities, as defined. FIN 46 is
applicable immediately for variable interest entities created after
January 1, 2003. For variable interest entities created prior to
January 1, 2003, the provisions of FIN 46 are applicable no later than
July 1, 2003. The Company does not currently believe that any material
entities will be consolidated as a result of FIN 46.

10. Commitments and Contingencies

Pace Investment Co., Inc., et al. v. Prologic Management Systems, Inc.,
CV 20003999 (previously reported in the Company's reports on 10-QSB):
In the first quarter of fiscal 2004, the parties negotiated a
settlement agreement whereby the Company would issue the plaintiffs
2.63 shares of Prologic common stock for each dollar ($1.00) of money
originally invested by the plaintiffs, reduced by the number of common
shares that have been issued to each current preferred stockholder as
dividends on the preferred stock. The total number of shares of common
stock to be issued to the plaintiffs is 1,197,634 shares. The parties
have agreed to dismiss with prejudice all claims in this case. The
settlement agreement will be effective upon execution by the parties,
after which time the common shares due thereunder will be issued.
Holders of the Company's Series A, Series B and Series C Preferred
Stock have also agreed to convert their preferred shares to shares of
the Company's common stock utilizing the same formula as that of the
Pace settlement. The total additional shares to be issued over and
above the initial conversion rate for all shares of Series A, B and C
Preferred Stock would be recorded as a deemed dividend based on the
fair market value of the Company's stock when effective. See Note 1 for
Material Subsequent Events.

Holualoa Butterfield Industrial LLC v. Prologic Management Systems,
Inc., C20035918, Superior Court for the State of Arizona in and for the
County of Pima, filed October 23, 2003. A complaint was filed by
Holualoa against Prologic to collect approximately $194,000 allegedly
owed by Prologic for the lease of office space in Tucson, Arizona. The
complaint claims $64,032 in rent charges and $129,968 in disputed
charges. The Company has answered the complaint disputing the amount of
money owed to Halualoha. No trial date has been set for this action.

Jonathan Neil & Associates, Inc. v. Basis, Inc., RG03-120611, Superior
Court, State of California, Alameda County, filed October 7, 2003. A
complaint was filed by Jonathan Neil & Associates against Basis to
collect approximately $265,000 owed by Basis to Pioneer Standard
Electronics, Inc. On December 8, 2003, the plaintiff requested from the
court an Entry of Default. An Entry of Default was granted on January
12, 2004 for a total amount of $373,919 which includes interest of
$83,332, plus costs and legal fees of $25,312.

Avnet Computer Marketing Group v. Prologic Management systems, Inc.,
C20032814, Superior Court for the State of Arizona in and for the
County of Pima, filed May 19, 2003. A complaint was filed by Avnet
against Prologic to collect approximately $150,000 owed by Prologic to
Avnet. Prologic does not deny this debt and has agreed to a stipulated
judgment for the full debt owed in this matter.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Introduction

Recent Events (See Note 1 Material Subsequent Events)

The Company and its wholly owned subsidiary, Basis, Inc., each filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code on
February 2, 2004, in the United States Bankruptcy Court, District of Arizona
(the "Chapter 11 Proceedings") (Case Nos. 04-0393 and 04-0394). The Company and
Basis will each continue to manage its properties and operate its businesses as
"debtor-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code. Because the
Chapter 11 Proceedings commenced after the end of the financial periods covered
by this Report, none of the effects, actual or potential, of the Chapter 11
Proceedings are reflected in this Report nor in the financial statements
included herein. See Note 1 for Material Subsequent Events.

General Information About the Company.

The Company provides systems integration services, maintenance
services, technology products and related services. The Company's revenues are
generated from systems integration, maintenance services, and related product
sales. The Company's services include systems integration, maintenance services,
and national and regional support in Internet and intranet application and
framework design, enterprise and workgroup client/server design and
optimization, relational database development, LAN/WAN and workgroup solutions,
network design and connectivity, and security and encryption design and
deployment. The discussion should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and its subsidiary and Notes
thereto, included herein at Item 1 of Part I.

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

The Company recognizes revenue from the sale of third-party hardware
and software products upon shipment from the vendor to the end user or when
shipped from the Company, whichever is appropriate. Title transfers FOB shipping
point. Revenue is recognized on sales of third-party maintenance agreements upon
receipt of the billing invoice from the vendor at which time the Company retains
no further obligation to the customer or vendor. Revenue from professional
services is recognized upon completion of the work and notification from the
customer of their acceptance. Revenue from software licensing is recognized in
accordance with Statement of Position 97-2, Software Revenue Recognition.
Revenue from software licensing is recognized when delivery of the software has
occurred, a signed non-cancelable license agreement has been received from the
customer and any remaining obligations under the license agreement are
insignificant. Revenue associated with agreements to provide product support
services is recognized as related services are provided. Revenue from annual or
other renewals of maintenance contracts is deferred and recognized on a
straight-line basis over the term of the contracts.

Impairment of Long Lived Assets

In assessing the recoverability of long lived assets, including
goodwill, we must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, we may be required
to record impairment charges for these assets not previously recorded. In the
fourth quarter of the fiscal year ended March 31, 2003, the Company determined
its goodwill was impaired and wrote-off the entire balance of $408,942.

Results of Operations

Three Months Ended December 31, 2003 and 2002

Net Revenue. Net revenue for the second quarter ended December 31, 2003
was $3,344,067 compared to $3,677,138 for the same period of the previous year,
a decrease of $333,071, or approximately 9.1%. The revenue decrease was due
primarily to a decrease in revenue from software licenses, offset somewhat by an
increase in sales of hardware. Revenue from sales of third party hardware for
the quarter ended December 31, 2003 was $1,980,235, an increase of approximately
5.7%, compared to $1,872,668 for the same period of the previous year. Revenue
from sales of third party software licenses for the quarter ended December 31,
2003, was $234,355, a decrease of approximately 48.6%, compared to $456,328 for
the same period of the previous year. Revenue from sales of professional
services for the quarter ended December 31, 2003, which was comprised
predominately of maintenance support services, was $1,129,477, a decrease of
approximately 16.2%, compared to $1,348,142 for the same period of the previous
year. The Company continues to concentrate on sales of services, which carry
higher margins than hardware and third party software sales.

Historically, the Company's revenues vary significantly from period to
period. This is due to the high revenues associated with the initial stages of a
typical system implementation in contrast to the relatively lower revenues
associated with services and products which may be furnished by the Company to
the customer after completion of the initial installation. Accordingly, the
Company's revenues may vary significantly from period to period for a variety of
reasons, including but not limited to the timing of customer orders for products
and services, deferrals and cancellations of orders, and capital spending
patterns of customers and prospective customers in the specific industries and
areas in which the Company's customers have historically been concentrated.

Costs of Sales. Costs of revenue were $2,245,672, or 67.2% of net
revenue, for the quarter ended December 31, 2003, compared to $2,984,905, or
81.2% of net revenue for the same period of the previous year. The overall
decreased costs of revenue were primarily the result of an increase in higher
margin maintenance service sales over the previous period. The Company expects
to see the margins on sales of third party hardware products continue to decline
in the long term as a result of continued competition and pricing pressure in
the computer market. The Company is attempting to offset the increasing cost of
third party products by increasing sales of higher-margin professional and
maintenance services.

General and Administrative. General and administrative expenses for the
quarter ended December 31, 2003 were $945,361, or 28.3% of net revenue, compared
to $1,419,841, or 38.6% of net revenue, for the same period of the previous
year. The decrease in these expenses is attributable to the Company's reduction
in operating expenses in response to uncertain economic conditions. The Company
normally expects general and administrative expenses to generally reflect long
range sales trends, rather than short-term sales cycles.

Selling and Marketing. Selling and marketing expenses were $348,536, or
10.4% of net revenue, for the quarter ended December 31, 2003, compared to
$213,829, or 5.8% of net revenue, for the same period of the previous year. The
increase in the amount of expenses is primarily the result of a change in
reporting method to accrue commission expense in the same period the
corresponding revenue is recognized. Previously the Company was expensing a
portion of commissions based upon collection of Accounts Receivables. In future
periods, selling and marketing expenses should be approximately 5.5% - 6.0%.

Operating Income (loss). Operating loss for the quarter ended December
31, 2003 was $195,502, or loss of 5.8% of net revenue, compared to an operating
loss of $941,437, or a loss of 25.6% of net revenue, for the same period of the
previous year. The improvement resulted from a favorable change in the sales mix
toward increased revenues from sales of higher margin services and software
licenses in the second quarter of fiscal 2004.

Interest Expense and Other Income (expense). Interest expense and other
income for the third quarter ended December 31, 2003 was $117,977, compared to
$161,715 for the same period of the previous year. Interest expense is on both
long-term and short-term debt.

Income Taxes. The Company had no income tax expense for the third
quarters of fiscal 2004 and 2003. As of December 31, 2003, the Company had
Federal net operating loss carry forwards of approximately $17,400,000. The
utilization of net operating loss carry forwards will be limited pursuant to the
applicable provisions of the Internal Revenue Code and Treasury regulations.

Net Loss. Net loss for the quarter ended December 31, 2003 was
$313,479, or a loss of approximately $0.05 per share, compared to a loss of
$1,103,152, or a loss of approximately $0.15 per share, for the same period of
the previous year. The net loss improvement resulted from a favorable change in
the sales mix toward increased revenues from sales of higher margin services and
software licenses in the second quarter of fiscal 2004.

Nine Months Ended December 31, 2003 and 2002
- --------------------------------------------

Net Revenue. Net revenue for the first nine months of fiscal 2004 was
$12,485,367 compared to $12,951,173 for the same period of the previous fiscal
year, a decrease of $465,806, or approximately 3.6%. The revenue decrease was
due primarily to the continuing economic downturn that caused clients to reduce
and/or defer hardware and software purchases during the nine-month period.
Revenue from sales of third party hardware for the nine months ended December
31, 2003 was $6,070,107, a decrease of approximately 19.6% over sales for the
same period of the previous fiscal year of $7,545,811. Revenue from sales of
third party software licenses was $1,569,164 for the nine months ended December
31, 2003, an increase of approximately 7.6% over revenue of $1,458,074 for the
first nine months of the previous fiscal year. Revenue from service sales for
the nine months ended December 31, 2003, which were comprised predominately of
integration, maintenance and support services, was $4,846,096, compared to
$3,947,288 for the same period of the previous fiscal year, an increase of
approximately 22.8%. The increase in service sales reflects the Company's
efforts to increase sales of higher margin services, which have been less
susceptible to market conditions than the demand for computer hardware.

Cost of Sales. Cost of sales for the nine months ended December 31,
2003 was $9,098,077, or 72.9% of total net sales, compared to $10,676,969, or
82.4% of net sales, for the same period of the previous fiscal year. The overall
decreased cost of sales was primarily the result of the increase in higher
margin services sales. The Company does not expect to see improved margins on
sales of third party hardware products in the near term, as the economic
downturn continues to drive competition and pricing pressure in the computer
market. The Company is attempting to offset the increasing cost of third party
products by increasing sales of higher-margin related services.

General and Administrative. General and administrative expenses for the
nine months ended December 31, 2003 were $2,968,528, or 23.8% of net sales,
compared to $3,535,588, or 27.3% of net sales, for the same period of the
previous fiscal year. The decrease in these expenses is attributable to the
Company's reduction in operating expenses in response to uncertain economic
conditions. The Company normally expects general and administrative expenses to
generally reflect long range sales trends, rather than short-term sales cycles.

Selling and Marketing. Selling and marketing expenses for the nine
months ended December 31, 2003 were $1,034,191, or 8.3% of net sales, compared
to $800,105, or 6.2% of net sales, for the same period of the previous fiscal
year. The increase in the amount of expenses is primarily the result of a change
in reporting method to accrue commission expense in the same period the
corresponding revenue is recognized. Previously the Company was expensing a
portion of commissions based upon collection of Accounts Receivables. In future
periods, selling and marketing expenses should be approximately 5.5% - 6.0%. The
Company normally expects sales and marketing expenses to generally reflect long
range sales trends, rather than short-term sales cycles.

Operating Income (loss). Operating loss for the nine months ended
December 31, 2003 was $615,429, or a loss of approximately 4.9% of net sales,
compared to a loss of $2,061,489, or a loss of 15.9% of net sales, for the same
period of the previous fiscal year. The operating loss resulted from the
continuing economic downturn that caused clients to reduce and/or defer hardware
and software purchases.

Interest Expense and Other Income (expense). Interest expense and other
expense for the nine months ended December 31, 2003 was $374,596, compared to
$456,839 for the same period of the previous fiscal year, which was mainly
interest paid on the current lines of credit and short term borrowings.

Income Taxes. The Company had no income tax expense for the first nine
months of fiscal 2004 and 2003. As of December 31, 2003, the Company had Federal
net operating loss carry forwards of approximately $17,400,000. The utilization
of net operating loss carry forwards will be limited pursuant to the applicable
provisions of the Internal Revenue Code and Treasury regulations.

Net Income (loss). The Company had a net loss of $990,025, or a loss of
approximately $0.14 per share, for the first nine months of fiscal 2004, as
compared to a net loss of $2,518,328, or a loss of approximately $0.36 per
share, for the same period of the previous fiscal year. The loss was the result
of the decrease in sales resulting from an economic downturn that caused clients
to delay a significant number of orders during the nine-month period.

Going Concern

The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern, which
contemplates the continuity of the Company's operations and realization
of its assets and payments of its liabilities in the ordinary course of
business. As more fully described elsewhere in this Report, on February
2, 2004, the Company and its subsidiary, Basis, Inc. each filed a
voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code. The uncertainties inherent in the bankruptcy
process raise substantial doubt about the Company's ability to continue
as a going concern. The Company is currently operating its business as
a debtor-in-possession under the jurisdiction of the bankruptcy court,
and continuation of the Company as a going concern is contingent upon,
among other things, the confirmation of a plan of reorganization, and
obtaining financing sources to meet its future obligations. If a
reorganization plan is not approved, it is possible some assets of the
Company may be liquidated. Due to the recent date of the filing of the
voluntary petititons, management's plans in regards to these matters
are presently being developed. The consolidated financial statements do
not include any adjustments to reflect future effects on the
recoverability and classification of assets or the amount and
classification of liabilities that might result from the outcome of
these uncertainties. ( See Note 1 for Material Subsequent Events.)

Liquidity and Capital Resources ( See Note 1 for Material Subsequent Events.)

The matters described in "Liquidity and Capital Resources" to the
extent that they relate to future events or expectations, may be significantly
affected by the Chapter 11 case. That proceeding will involve, or may result in,
various restrictions on the Company's activities, limitations on financing, the
need to obtain Bankruptcy Court approval for various matters and uncertainty as
to relationships with vendors, suppliers, customers and others with whom the
Company may conduct or seek to conduct business.

Generally, under the Bankruptcy Code, most of a debtor's
liabilities must be satisfied in full in order to preserve the value of the
debtor's preferred and common stock. The rights and claims of the Company's
various creditors and security holders will be determined by the plan of
reorganization to be filed by the Company. No assurance can be given as to what
values, if any, will be ascribed in the bankruptcy proceedings to each of these
constituencies.

At December 31, 2003 the Company had a working capital deficit of
approximately $12,252,000 versus a deficit of approximately $4,401,000 at March
31, 2003. As a result of the working capital deficit at March 31, 2003 (the
Company's fiscal year end), the Company's independent certified public
accountants have expressed substantial doubt about the Company's ability to
continue as a going concern. The total cash balance at December 31, 2003 was
$400,785.

Cash used in operations during the nine months ended December 31, 2003
was $210,201, compared to $81,254 for the corresponding period in fiscal 2002.
Cash used in investing activities was $3,170 for the period ended December 31,
2003 and $153,095 in the nine months ended December 31, 2002. Cash provided by
financing activities for the period ended December 31, 2003 was $397,252,
compared to financing activities of $771,101 for the corresponding period in
fiscal 2002.

At December 31, 2003, the Company had current debt obligations, or debt
that will become due within twelve months, of $10,673,968. It is unlikely that
the Company will be able to service this debt from funds generated by operations
alone. As a result, the Company will require additional equity, debt financing,
or deferment of debt repayment to maintain current operations and service
current debt.

During the nine months ended December 31, 2003, the Company purchased
$3,170 of capital equipment or software.

The Company's ability to continue in operations during the last several
years has depended upon the continuing receipt of financial accommodations from
a key lender. These financial accommodations are discussed in the paragraphs
below. In November 2003, this lender notified the Company that it was in default
on a $610,000 note that was due and payable on September 26, 2003, and on a
$5,000,000 note due and payable in April 2004. As of the date of this report,
the Company has not repaid any of the outstanding balances under either of these
notes, and the Company does not have a source of funds to cure these defaults.
The Company's obligations to this lender are secured by security interests
covering all or substantially all of the Company's assets. The Company has been
verbally notified by the lender that the lender intends to foreclose on the debt
and take possession of all of the Company's assets. The Company will be unable
to continue in business after such a foreclosure. As a consequence of the
Company's filing under Chapter 11 of the United States Bankruptcy Code, any
action by the lender will be taken in the context of the Company's Chapter 11
Proceedings, discussed above.

Historically, the Company has been unable to generate sufficient
internal cash flows to support operations, and has been dependent upon outside
capital sources to supplement cash flow. New equity investments, lines of credit
and other borrowings, and credit granted by its suppliers have enabled the
Company to sustain operations over the past several years. In August 1998, the
Company had failed to meet the "continued listing criteria" established by
NASDAQ and the Company's securities were delisted from the NASDAQ Small Cap
Market. The subsequent lack of shareholder liquidity in the Company's securities
has materially adversely affected the Company's ability to attract equity
capital. Additionally, the lack of capital resources has precluded the Company
from effectively executing its strategic business plan. The ability to raise
capital and maintain credit sources is critical to the continued viability of
the Company.

During fiscal 2000, the Company authorized a class of securities
designated Series C 10% Cumulative Convertible Preferred Stock, consisting of
100,000 shares with a Stated Value of $10.00 per share, a dividend rate of 10%
and an Applicable Conversion Value of $2.25. On December 30, 1999, the Company
authorized the sale of 75,000 shares of the Series C Preferred, including 37,500
shares to a related party and 37,500 shares to an entity in which officers of
the Company have a minority interest, for an aggregate of $750,000, pursuant to
two subscription agreements. Of the $750,000 in proceeds, $220,780 represented
conversion of current debt from a related party, and $529,220 was subscribed to
in cash. Including the conversion of debt, and $337,720 in cash payments, the
Company received $558,500, representing 55,850 shares of the Series C Preferred
stock, and extended the due date for the remaining $191,500 based upon the final
Pace settlement. In the first quarter of fiscal 2004, all holders of the
Company's Series A, Series B and Series C Preferred Stock agreed to convert
their preferred shares to shares of the Company's common stock utilizing the
same formula as that of the Pace settlement (see Part II, Item 1 of this
report). The shares are expected to be issued in fiscal 2004.

During fiscal 2002, the Company entered into a financing agreement with
a key lender. This agreement provides the Company with an immediate partial
advance on all sales and requires the Company to immediately assign the related
receivables to the lender. Upon collection of the related receivables, the
lender pays the remaining balance, if any, to the Company. The receivables are
assigned with recourse and advances over 90 days outstanding bear interest at a
rate of 10% per annum. At December 31, 2003, the Company was liable for
$1,686,934 under this agreement, which is included in short-term debt and notes
payable.

On March 26, 2003, the Company entered into an agreement with a key
lender in the form of a line of credit for total advances not to exceed $610,000
and with an interest rate of eight percent (8%) per annum, which shall be
payable in arrears on the 10th day of each month commencing April 10, 2003. All
outstanding principal and accrued, but unpaid interest, if not paid earlier, was
due on September 26, 2003. The note is secured by all of the Company's assets.
At March 31, 2003 and December 31, 2003, the Company was liable for $205,000 and
$610,000, respectively, under this agreement. As of the date of this report the
Company has not repaid any of the outstanding principal or interest and the key
lender has notified the Company that the note is in default. The Company has no
source of funds to cure this default. The Company has been verbally notified by
the lender that the lender intends to foreclose on the debt and take possession
of all of the Company's assets. The Company will be unable to continue in
business after such a foreclosure. On February 2, 2004 the Company and its
wholly owned subsidiary, Basis, Inc., each filed a Voluntary Petition under
Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court
District of Arizona. The Company filed a Form 8-K with the SEC on February 2,
2004 disclosing the Chapter 11 filings. See Note 1 for Material Subsequent
Events.

During fiscal 2000, the Company and one of its primary vendors agreed
to convert $1,212,000 of the Company's trade payables to the vendor into a
promissory note. The promissory note includes interest at 11%. At December 31,
2003, the principal balance was approximately $723,000.

During fiscal 2001, the Company signed a settlement agreement with
Sunburst Acquisitions IV, Inc. The settlement agreement resulted in 1,959,972
shares of the Company's common stock being returned to the Company and
cancelled, and $100,000 in settlement expense cost reimbursement to be paid to
Sunburst, of which $25,000 was paid in cash and the Company executed a
short-term promissory note for the remaining $75,000, bearing interest at 10%
per annum. As of December 31, 2003, the principal balance of this note remains
$75,000.

In December 2000, the Company signed a $5 million note, converting
approximately $5 million of its accounts payable, with 10% interest and an
initial due date of April 2, 2002. The note is secured by a pledge to the note
holder of substantially all of the Company's assets. In August 2002, the Company
renegotiated the terms of the note. The current note bears interest at 6% and is
due in April 2004, with the option of the maker to extend the maturity date to
April 2005. The balance of the current promissory note at December 31, 2003 is
$6,336,686 with approximately $939,260 accrued interest at December 31, 2003.
The current note requires the Company to make monthly payments of 40% of its
available operating profits each month. The note further requires that the
Company direct 50% of any future sums received by, committed to, or invested in
the Company as an additional equity capital infusion, towards repayment of the
unpaid balance of the note. In August 2002, the Company further amended the note
to include weekly payments of $1,000. As of the date of this report the Company
has not repaid any of the outstanding principal or interest and the key lender
has notified the Company that the note is in default. The Company has no source
of funds to cure this default. The Company has been verbally notified by the
lender that the lender intends to foreclose on the debt and take possession of
all of the Company's assets. The Company will be unable to continue in business
after such a foreclosure. As a consequence of the Company's filing under Chapter
11 of the United States Bankruptcy Code, any action by the lender will be taken
in the context of the Company's Chapter 11 Proceedings, discussed above.

In fiscal 1997, the Company borrowed $100,000 with an interest rate of
8% and a scheduled maturity date of June 30, 1997. Subsequently, the maturity
date was extended with a revised interest rate of 2% per month plus 10,000
shares per month of restricted common stock. During fiscal 2000, the Company
issued 120,000 shares of common stock as interest towards the note. In March
2000, the Company renegotiated the terms of the note and eliminated the common
stock interest component. The replacement note is unsecured, in the amount of
$164,500, which includes interest and expenses previously accrued, and bears
interest at 3% per month. As of December 31, 2003, the remaining balance of this
note, including principal and interest, was $27,521.

During fiscal 1998 and 1997, the Company borrowed $365,000 in
short-term notes collateralized by its computer equipment and office
furnishings. Subsequently, $170,000 of these notes was exchanged for 288,000
shares of common stock and $65,000 in principal was repaid. The interest rate on
the notes is 2% per month. As of December 31, 2003, the remaining principal
balance on these notes, which is currently overdue, is $100,000.

At December 31, 2003, the Company owed approximately $373,528 in prior
sales tax. The Company has negotiated monthly payments on this outstanding
balance. The Company is remitting sales taxes on a timely basis on current sales
and is current on all other tax obligations.

Plan of Operations

The Company's apparent improving performance in fiscal 2001 was
subsequently adversely impacted by the general national and regional economic
downturn, and the situation was further aggravated by the terrorist attacks and
threats that began in September 2001. In fiscal 2002, the Company's management
implemented aggressive measures to reduce operating costs, increase service
sales, and other strategies to minimize the impact on revenues as customers and
potential customers took an increasingly conservative position on hardware and
software spending.

The Company, during fiscal 2003 and 2004, has continued to reduce
controllable expenses, reduce its reliance upon low margin hardware sales, and
focused on securing higher margin maintenance contracts, professional service
engagements and third party software license revenues, which have been less
susceptible to adverse economic conditions than the demand for computer
hardware.

In the first nine months of fiscal 2004, the Company has continued to
effect a favorable change in its sales mix, increasing sales of higher margin
services and software licenses, while reducing its reliance on hardware sales.
For the period ended December 31, 2003, revenue from sales of services and
software licenses represented 51.4% of total sales, compared to 41.7% of total
sales for the same period of the prior fiscal year, while hardware sales
represented 48.6% of total sales, compared to 58.3% of total sales for the same
period of the prior fiscal year.

In November 2003, our principal lender notified the Company that it was
in default under a $610,000 note, which was due and payable on September 26,
2003, and in default on a $5,000,000 note due and payable in April 2004. The
Company's obligations to the lender are secured by security interests covering
substantially all of the Company's assets. The Company has been verbally
notified by the lender that the lender intends to foreclose on the debt and take
possession of all of the Company's assets. The Company will be unable to
continue in business after such a foreclosure.

Recently Issued Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities," to improve accounting for
derivative instruments. SFAS 149 requires that contracts with comparable
characteristics be accounted for similarly. It clarifies when a contract with an
initial net investment should be considered a derivative. Additionally, it
clarifies when a derivative includes a financing component that should be
reported as a financing activity in the statement of cash flows. SFAS No. 149
generally is effective for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003. The adoption
of SFAS No. 149 did not have a material effect on the Company's consolidated
financial position or results of operations.

In June 2003 the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity" SFAS
No. 150 requires certain instruments, including mandatory redeemable shares, to
be classified as liabilities, not as part of shareholders' equity or redeemable
equity. For instruments that are entered into or modified after May 31, 2003,
SFAS No. 150 is effective immediately upon entering the transaction or modifying
the terms. For other instruments covered by Statement 150 that were entered into
before June 1, 2003, Statement 150 is effective for the first interim period
beginning after June 15, 2003. The Company is evaluating the provisions of SFAS
No. 150. The Company anticipates conversion of all its redeemable preferred
stock into common stock by the end of the second quarter of fiscal 2004 and,
accordingly, does not expect SFAS No. 150 to have a material effect on the
Company's consolidated financial position or results of operations.

In November 2002, the FASB issued interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees. Including indirect
Guarantees of Indebtedness of Others," which disclosures are effective for
financial statements for periods ending after December 15, 2002. While the
Company has various guarantees included in contracts in the normal course of
business, primarily in the form of indemnities, these guarantees would only
result in immaterial increases in future costs, but do not represent significant
commitments or contingent liabilities of the indebtedness of others.

In January 2003, the FASB issued interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN 46) which requires the consolidation of
variable interest entities, as defined. FIN 46 is applicable immediately for
variable interest entities created after January 1, 2003. For variable interest
entities created prior to January 1, 2003, the provisions of FIN 46 are
applicable no later than July 1, 2003. The Company does not currently believe
that any material entities will be consolidated as a result of FIN 46.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995

Management's discussion and analysis should be read in conjunction with
the audited Consolidated Financial Statements contained elsewhere in this
quarterly report on Form 10-QSB. Except for the historical information contained
herein, the matters discussed in this report on Form 10-QSB are forward-looking
statements that involve a number of risks and uncertainties. There are numerous
important factors and risks, including the rapid change in hardware and software
technology, market conditions, the anticipation of growth of certain market
segments and the positioning of the Company's products and services in those
segments, seasonality in the buying cycles of certain of the Company's
customers, the timing of product announcements, the release of new or enhanced
products, the introduction of competitive products and services by existing or
new competitors and the significant risks associated with the acquisition of new
products, product rights, technologies, businesses, the management of growth,
the Company's ability to attract and retain highly skilled technical, managerial
and sales and marketing personnel, and the other risks detailed from time to
time in the Company's SEC reports, including reports on Form 10-KSB and Form
10-QSB, that could cause results to differ materially from those anticipated by
the forward-looking statements made herein. Therefore, historical results and
percentage relationships will not necessarily be indicative of the operating
results of any future period.

Item 3. Controls and Procedures

Under the supervision and with the participation of our management,
including the chief executive officer and chief financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14(c) as of the end of
the period covered by this report. Based on that evaluation, the chief executive
officer and chief financial officer have concluded that these disclosure
controls and procedures are effective. There were no changes in our internal
control over financial reporting during the quarter ended December 31, 2003 that
have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

Pace Investment Co., Inc., et al. v. Prologic Management Systems, Inc.,
CV 20003999 (previously reported in the Company's reports on 10-QSB):
In the first quarter of fiscal 2004, the parties negotiated a
settlement agreement whereby the Company would issue the plaintiffs
2.63 shares of Prologic common stock for each dollar ($1.00) of money
originally invested by the plaintiffs, reduced by the number of common
shares that have been issued to each current preferred stockholder as
dividends on the preferred stock. The total number of shares of common
stock to be issued to the plaintiffs is 1,197,634 shares. The parties
have agreed to dismiss with prejudice all claims in this case. The
settlement agreement will be effective upon execution by the parties,
after which time the common shares due thereunder will be issued. The
Company expects the settlement agreement to be executed in the fourth
quarter of fiscal 2004. Holders of the Company's Series A, Series B and
Series C Preferred Stock have also agreed to convert their preferred
shares to shares of the Company's common stock utilizing the same
formula as that of the Pace settlement. The total additional shares to
be issued over and above the initial conversion rate for all shares of
Series A, B and C Preferred Stock will be recorded as a deemed dividend
of approximately $190,000 when effective in the fourth quarter of
fiscal 2004.

Holualoa Butterfield Industrial LLC v. Prologic Management Systems,
Inc., C20035918, Superior Court for the State of Arizona in and for the
County of Pima, filed October 23, 2003. A complaint was filed by
Holualoa against Prologic to collect approximately $194,000 allegedly
owed by Prologic for the lease of office space in Tucson, Arizona. The
complaint claims $64,032 in rent charges and $129,968 are disputed
charges. The Company has answered the complaint disputing the amount of
money owed to Halualoha. No trial date has been set for this action.

Item 2. Changes in Securities

None.

Item 3. Defaults upon Senior Securities

In November 2003, GE Access, a lender to the Company,
notified the Company that it was in default on a $610,000 note that was due and
payable on September 26, 2003, and on a $5,000,000 note due and payable in April
2004. As of the date of this report, the Company has not repaid any of the
outstanding balances under either of these notes, and the Company does not have
a source of funds to cure these defaults. The Company's obligations to this
lender are secured by security interests covering all or substantially all of
the Company's assets. The Company has been verbally notified by the lender that
the lender intends to foreclose on the debt and take possession of all of the
Company's assets. The Company will be unable to continue in business after such
a foreclosure. As a consequence of the Company's filing under Chapter 11 of the
United States Bankruptcy Code, any action by the lender will be taken in the
context of the Company's Chapter 11 Proceedings, discussed above. (See Note 1
Material Subsequent Events)

Item 4. Submission of Matters to a Vote by Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

A. Exhibits filed herewith:
31.1 Certification of Chief Executive Officer pursuant to Item
601(b)(31) of Regulation S-B. (Filed herewith)
31.2 Certification of Chief Financial Officer pursuant to Item
601(b)(31) of Regulation S-B. (Filed herewith)
32.1 Certification of Chief Executive Officer pursuant to item
601(b)(32) of Regulation S-B. (Filed herewith)
32.2 Certification of Chief Financial Officer pursuant to item
601(b)(32) of Regulation S-B. (Filed herewith)

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

PROLOGIC MANAGEMENT SYSTEMS, INC.

DATED: February 17, 2004 By: /s/ John W. Olynick
----------------------------------
John W. Olynick
Chief Executive Officer

By: /s/ Edwin G. Hubert
----------------------------------
Edwin G. Hubert
Chief Financial Officer